Tape 43 - State of the union

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-	How will President Nixon achieve the balanced budget?	0:02
	Will he recommend cuts to Congress?	0:04
	Will Congress be able to cut down expenditures?	0:06
	Will we have any substantial defense cut backs?	0:09
	President Richard Nixon has delivered	0:12
	his State of the Union Address	0:13
	and several of his main points	0:15
	will have a great effect on the nation's economy.	0:16
	Listen now as Instructional Dynamics	0:19
	presents MIT Professor Paul Samuelson	0:21
	with an in-depth look at the president's speech.	0:23
-	It has been a long time	0:27
	since I made my last recording in this series.	0:28
	I've been out of the country twice	0:30
	and in the intervening time,	0:33
	a great number of rather interesting	0:35
	if not exciting things have been happening to the economy.	0:37
	Let me today try to comment	0:40
	upon a number of the most significant of these happenings.	0:43
	First, on this very day as I speak,	0:48
	President Nixon has just given his State	0:50
	of the Union message.	0:52
	What are its economic implications?	0:55
	At a first hearing it appears	0:58
	that his central theme	1:01
	has been the quality of life	1:03
	as against mere quantitative growth	1:07
	in the GNP or Gross National Product.	1:11
	This involves a very heavy emphasis	1:15
	upon the environment,	1:17
	upon ecology, a word which we will be hearing more about	1:18
	but was absent from sixth grade	1:22
	when I went to school,	1:25
	the balance of nature.	1:27
	And	1:29
	these particular proposals	1:34
	do not by themselves tell us much	1:38
	about what's likely to happen	1:43
	to the macroeconomic totals of government spending.	1:45
	They tell us something about the composition	1:49
	of that spending.	1:52
	The president did in a throwaway sentence	1:54
	which was very much applauded	1:57
	say that he was going to present a balanced budget.	1:59
	I don't think there's anything very surprising	2:06
	in that statement.	2:08
	It's hard to believe that in a time of inflation	2:10
	when this concern over rising prices	2:13
	is very much present in the electorate's mind	2:16
	that any president however profligate his party platform	2:21
	would come forward and admit to an unbalanced budget.	2:26
	Now, how will the president when the budget message arrives	2:32
	succeed in presenting a balanced budget	2:38
	or even a budget with a surplus	2:41
	so that it will resemble in some degree	2:45
	the surplus in the 1969 fiscal year budget	2:48
	and in the recent current 1970 fiscal year budget?	2:54
	Several ways.	2:59
	One, he could can have a genuine surplus	3:00
	because that's the way the ball bounces	3:02
	in the figures that the expenditures	3:04
	that are likely to take place	3:07
	will be less than the tax receipts	3:09
	and they're likely to come in under present programs.	3:13
	It looks there as if Mr. Nixon is not so lucky	3:17
	that all this would happen naturally.	3:21
	There are many uncontrollable items	3:24
	in the expenditure package	3:26
	which are becoming more and more expensive	3:28
	and so, there is a second method	3:31
	by which this can be brought about,	3:36
	namely the president	3:38
	can militantly recommend new legislation	3:40
	which will cause there to be genuine new tax levies,	3:44
	increases in the tax rates on existing taxes	3:52
	and that these will bring in more than enough revenue	3:56
	to over balance the budget.	4:01
	The parallel device to this	4:03
	is that the president can recommend to the Congress	4:07
	cuts in actual expenditure	4:10
	which the Congress will make	4:14
	and the president can reinforce these	4:17
	with certain discretionary expenditure,	4:19
	cuts within his own executive department	4:22
	and on his own volition	4:26
	and thereby as a result of discretionary policy	4:28
	we will have an over balanced budget	4:32
	with a needed surplus to fight inflation.	4:35
	This, however, is also not an easy	4:40
	or perhaps not even a feasible program	4:44
	for Mr. Nixon.	4:46
	To look only at the tax picture,	4:49
	the people today	4:52
	at the same time that they are conscious of inflation	4:55
	are feeling very poor,	4:58
	they are feeling very put upon.	4:59
	I'd like to comment later	5:01
	on this in my travels around the country,	5:03
	I've noticed this to have risen	5:06
	I believe to a new crescendo.	5:09
	That being the case,	5:12
	the electorate is not in the mood	5:12
	to look with great favor upon extra tax levies,	5:15
	new kinds of taxes,	5:19
	higher rates on old taxes,	5:21
	extensions of the surtax.	5:24
	And this mood which I believe	5:27
	is in among the rank and file	5:29
	on Main Street I think is also reflected	5:33
	on Capitol Hill.	5:35
	Congressmen at this time	5:36
	sensing how the people feel	5:40
	and themselves being samples	5:42
	of the American people	5:44
	are in no eager mood	5:46
	to give the president new tax legislation	5:49
	that will cut in deeper	5:54
	and produce extra revenues.	5:56
	It will not be easy	5:58
	to cut many programs	6:00
	because the nation is crying out	6:03
	for help from Washington,	6:06
	this at the state and local level	6:10
	under the new federalism,	6:12
	a word and expression which Mr. Nixon again emphasized	6:14
	in his State of the Union message,	6:18
	crying out for help from Washington	6:19
	because of tangible, ever-present problems,	6:22
	increasing responsibilities	6:27
	of government at all level,	6:29
	to improve the quality of life	6:31
	as I shall comment on in a moment,	6:32
	here too new resources provided	6:36
	and funneled through government	6:40
	will be necessary	6:42
	and so, it will not be easy outside	6:44
	of the defense budget to count upon Congress	6:48
	as cutting expenditures.	6:53
	This leaves us among other things	6:56
	with the defense budget.	6:58
	Here I would suppose	7:00
	that the president has sensed	7:02
	that it is very popular with the American people	7:05
	to cut down on the size of the armed forces	7:08
	to limit the manpower aspects of our commitment	7:10
	in Vietnam and overseas.	7:15
	And so, I suspect	7:18
	that we will have some very substantial recommendations	7:21
	of defense cuts by the Secretary of Defense,	7:24
	Melvin Laird and by the president	7:28
	and this will result in some real economies.	7:31
	On the other hand,	7:34
	there are some increasing security needs	7:36
	of the United States in the field of hardware.	7:39
	The president has emphasized	7:42
	and re-emphasized again recently	7:45
	the importance of the ABM	7:48
	which will involve a new round of expenditures.	7:51
	There is a B1 manned bomber	7:54
	which McNamara had been too beastly	7:58
	to give to the Air Forces	8:02
	which is said now to have a considerable measure	8:03
	of support and so, I predict	8:06
	that you will see some substitution	8:09
	in the defense budget	8:12
	of hardware for very soft mother sons	8:14
	so that part of what you save	8:19
	in reduction of the size of the armed forces	8:21
	will go to an increase to some of these programs.	8:25
	Still I believe there is enough waste	8:28
	and inefficiency and over broadness of scope,	8:32
	even the hardware part of the Federal budget	8:36
	on defense and on space	8:41
	so that there can be some sizeable cuts	8:43
	in those programs	8:44
	which the president feels are of lower priority,	8:47
	so there'll be some genuine savings there.	8:50
	But all said and done,	8:52
	it looks to be nip and tuck	8:54
	that the president could by these measures alone	8:57
	show a budget with a balance	9:00
	or certainly with a surplus of any size.	9:05
	At this point we come into the fine art	9:10
	of phony budgets.	9:12
	And in what I'm talking about now,	9:14
	I'm only talking about what every person knows	9:16
	has been the pattern of governments	9:20
	in the last couple of decades	9:23
	of either political party.	9:27
	What I'm saying is true of the Eisenhower years	9:29
	as of the Truman years	9:31
	and of the Kennedy-Johnson years.	9:34
	If you find it difficult	9:37
	or even impossible to balance the budget genuinely,	9:39
	you always have window dressing,	9:44
	phony ways of balancing the budget,	9:46
	namely ask for tax increases which you know	9:48
	you won't get even though you know you won't get them,	9:51
	the Congress won't give them to you,	9:54
	the people won't vote them,	9:56
	ask for expenditure cuts	9:57
	which you are quite sure Congress will not give you	10:00
	and which you cannot afford unilaterally	10:05
	within the Executive Office to put through yourself.	10:07
	Indeed one way of keeping up expenditures	10:11
	of the Federal Government sometimes	10:14
	is to cut down very hard, overly hard you might say	10:16
	on a vital perceived to be important public service	10:19
	like say we'll have no mail on Monday,	10:24
	Wednesdays and Fridays.	10:27
	Saying that will save a lot of money in the budget,	10:29
	will show a surplus on the post office accounts and so forth	10:33
	but saying it, the tongue also knows precisely	10:36
	that will never happen,	10:41
	that the American people who be so incensed not	10:42
	to get their publications and messages on time	10:44
	that they will put pressure on Congress	10:49
	to restore the service	10:51
	and maybe even to enhance spending in that direction.	10:52
	I don't think there's any point in my speculating	10:56
	at this time on just what the size	10:58
	of the president's budget will be,	11:03
	just how phony some of the phony items	11:05
	that may be.	11:08
	Let me turn	11:11
	to the other aspects	11:14
	of the State of the Union message	11:17
	which might have some bearing	11:19
	upon the state of the economy,	11:20
	upon the macroeconomic magnitudes.	11:24
	First, I'd like to say	11:27
	that I am no great admirer in general	11:28
	of the Republican Party,	11:34
	I salute Mr. Nixon's determination	11:37
	to have a big push against pollution of the environment.	11:42
	Indeed, as I listen to Mr. Nixon's speech	11:47
	and I thought it was a well-delivered speech,	11:52
	I thought it was a speech	11:54
	which in its rhetoric, in its mode of expression	11:56
	would appeal to a broad spectrum of America.	12:00
	It would appeal specifically to Middle America,	12:05
	that interesting expression coined	12:10
	by Joseph Kraft, the columnist of I think	12:13
	of The Washington Post Syndicate	12:16
	really to represent that great silent majority	12:19
	who are as square as President Nixon	12:23
	and Pat Nixon tried to appear to be.	12:27
	The president in his choice of words and language	12:32
	would appeal to this rather conservative group.	12:36
	This group, by the way, includes working men	12:40
	who have moved out of poverty	12:43
	and are in a position	12:47
	where they feel threatened	12:52
	by some of the reform movements of the current age	12:54
	although that was the case	12:58
	as I listened to the president,	12:59
	I found myself reformulating in my own mind	13:01
	exactly the same goals that he was saying.	13:06
	In the language let us say of an activist president	13:10
	like Franklin Delano Roosevelt	13:14
	and I thought that just by changing the rhetoric,	13:16
	I could make this rather reassuring conservative speech	13:19
	sound like an ominous call for action	13:24
	for planning by a rabble-rousing new deal type of president.	13:28
	I think that's inescapable	13:37
	because if you examine the problem	13:40
	of the quality of life,	13:43
	the quality of life involves problems	13:45
	where we cannot count upon individual initiative	13:48
	and laissez-faire by themselves to solve them.	13:52
	Now, to be sure,	13:56
	there are certain cases	13:58
	where bad government incentive programs	13:59
	and rules of the game	14:03
	have contributed towards the deterioration	14:06
	of the environment	14:09
	but by and large	14:10
	and here we can I think just take pollution	14:12
	of the atmosphere by smoke,	14:16
	by sulfur dioxide, by carbon monoxide,	14:19
	by carbon dioxide	14:22
	by soft coal precipitants	14:26
	and the pollution of our rivers	14:29
	by phosphates, by detergents,	14:33
	by farm fertilizers,	14:38
	by industrial waste,	14:42
	by the thermal pollution	14:44
	of large electric generating stations,	14:48
	if you take every one of these particular problems	14:53
	which have become oh so important	14:56
	just in our brief lifetimes,	14:59
	there isn't one of them	15:02
	where you can depend upon enlightened self-interest	15:05
	to solve the problem.	15:08
	These all fall under the category	15:10
	of what we in economics call neighborhood effects,	15:13
	what we in economics	15:16
	call external diseconomies, externalities.	15:17
	We can count upon a businessman	15:23
	who's running his own business	15:25
	within his factory	15:27
	to balance costs against revenues	15:29
	and to make a pretty good decision	15:33
	because he doesn't make a pretty good decision,	15:35
	ruthless competition will eliminate him.	15:37
	If he does make a good decision,	15:40
	he will be the beneficiary of that.	15:43
	He, his stockholders, his workers and so forth.	15:45
	But if I produce more cheaply electric power	15:49
	by virtue of using sour petroleum	15:55
	which I can buy at a lower rate,	16:00
	say from Venezuela in one particular case,	16:04
	I am motivated to do that.	16:10
	And yet who pays the hidden cost of that?	16:12
	Obviously it's not the electric company,	16:15
	it is not my balance sheet which shows that,	16:21
	it is the nostrils of the citizenry at large	16:24
	and it's very hard to point the finger	16:28
	at my particular plant	16:30
	as the pollutant or to take a different case,	16:31
	it's a very obvious one,	16:34
	the prime villain of the scenario	16:37
	of our time in many, many, many cases	16:41
	is the automobile and when I say the automobile,	16:43
	it's we automobile owners.	16:46
	Time and again it has been shown	16:49
	we insist upon driving to work alone,	16:51
	we move a huge pool of air	16:54
	surrounding us through space,	16:59
	just post yourself at a highway or a freeway leading	17:03
	into the city where commuting traffic passes	17:07
	and examine how many single occupants of cars there are	17:11
	and time again, universities and business firms	17:16
	have tried to introduce carpooling	17:19
	and so forth but that extra little bit	17:23
	of flexibility, the independence which we have	17:26
	in driving our own automobiles	17:28
	is so important to us	17:30
	that we insist upon it	17:31
	and the atmosphere shows the effects.	17:34
	Now, we cannot blame anybody for that.	17:37
	Nobody in the private enterprise system	17:40
	can be said to be the villain.	17:43
	Nobody has behaved maliciously	17:45
	so that a court of law	17:48
	could sentence him.	17:50
	The automobile manufacturers	17:53
	cannot load their car with expensive anti-pollutants	17:56
	which will make their cars competitively not sell	18:02
	unless the people are willing to pay extra for that.	18:05
	But the big thing about pollution of course is	18:08
	that you want the other fellow	18:10
	to have an anti-pollutant device on his car,	18:12
	there's very little point in letting him go Scott free	18:16
	and not have it and you have it	18:20
	because you are then simply being an altruist	18:22
	and having very little benefit to yourself.	18:26
	So, this whole theme of quality of life leads inevitably	18:30
	and I'm not criticizing,	18:36
	I'm actually applauding this	18:37
	toward greater coercion, greater common rules of the road,	18:39
	greater government interference	18:44
	and I find it extremely interesting	18:47
	that of our two parties, political parties,	18:50
	the more conservative one	18:53
	has arrived on the scene	18:55
	and has found that scene in such a state	18:58
	that it must carry this particular ball.	19:00
	Now, in the time that's left to me right now,	19:05
	let me comment on the progressing state of the economy.	19:10
	First, the most striking news	19:15
	was that there was no real growth in the GNP	19:18
	in the fourth quarter.	19:21
	By a narrow hair's width,	19:23
	there was actually a 1/10 of $1 billion decline	19:28
	in the real GNP in the fourth quarter.	19:35
	Now, I don't think there's any importance	19:39
	to 1/10 of a billion	19:41
	except in one respect.	19:44
	We've been speculating on these tapes	19:46
	and economists everywhere in their writings	19:48
	on whether the National Bureau	19:51
	will deem there to be a recession	19:54
	in the period 1969 to 1970	19:58
	and the operational test of that	20:02
	which Las Vegas might use	20:04
	would be for two consecutive quarters	20:05
	will there be a sustained decline	20:08
	in the real GNP?	20:13
	You know my opinion.	20:15
	As against those who have regarded this	20:17
	as practically inevitable,	20:19
	I said several weeks ago	20:21
	that I thought it was a 60/40 or a 65/35 bet	20:26
	against their being a recession	20:32
	as measured by this particular criterion	20:35
	and of course I thought the odds were greater	20:37
	against there being a very serious depression	20:39
	or a recession.	20:44
	Well, I think that as far	20:47
	as the first unrevised figures are concerned	20:49
	and as far as the bet is concerned,	20:53
	we have one quarter behind us	20:56
	in which there was a small but actual decline	20:57
	and so, the odds changed completely	21:03
	on this particular bet	21:05
	because now you need only one more quarter	21:07
	of decline in order to be able	21:09
	to say by the definition I've used	21:14
	that there will be a recession	21:16
	and I change my opinions when my information pattern changes	21:18
	and so, now I would say	21:24
	that there is better than a 50% chance	21:26
	or about a 50% chance	21:31
	that the first quarter of the year	21:34
	will also show a trifling decline	21:36
	in the real GNP	21:41
	and in that case, there will be a recession.	21:43
	Now, I don't know that I particularly mind losing	21:46
	that bet but leaving personal vanity aside completely,	21:51
	I think this is rather a good thing	21:56
	for the country because the administration	21:58
	has been able to drive home the public message	22:00
	that the anti-inflation	22:05
	is really working, that we have now stopped	22:07
	the real growth.	22:11
	Indeed, maybe the best situation in the world	22:15
	would be a recession which is hardly a recession	22:19
	but which could definitely be called a recession	22:22
	because that would have some	22:26
	pleasing effects upon inflation.	22:26
	Meantime, however, that this is happening	22:29
	and automobiles sales are weak	22:32
	and the leading indicators continue to show a decline,	22:35
	the Federal Reserve Board Index shows a decline,	22:39
	the unemployment it's true	22:42
	has not yet showed an increase	22:43
	but we have ways of explaining that away.	22:46
	Meantime, we have not had in the consumer's price index	22:49
	any particular pay-off	22:55
	on the pace of inflationary growth.	22:57
	Indeed, the last two months of the year	23:01
	will show a higher average than the first 10 months	23:03
	of the year in the rate of inflation	23:06
	because of an unfortunate behavior	23:09
	of the series in November and December.	23:11
	Nevertheless, the prerequisite	23:15
	for making some progress on the consumer's price index	23:20
	will have to be through some form of retardation	23:24
	and so, I think that one can regard	23:28
	the fourth quarter figures really as good news.	23:32
	Part of it is of course due to the GE strike	23:36
	and I think, however,	23:39
	that one should not exaggerate	23:41
	the importance of anything new	23:44
	that we have learned in the fourth quarter.	23:47
	It's a continuation of trends	23:50
	that have been expected	23:53
	and there has not been any great deceleration	23:55
	in the economy.	24:00
	Indeed, from a standpoint	24:01
	of the growth ahead of the economy,	24:03
	I would call your attention	24:07
	to the fact that the reason that the fourth quarter,	24:09
	a reason that the fourth quarter actually went downhill	24:14
	was that inventory accumulation	24:17
	was lower in the fourth quarter	24:20
	than in the third quarter.	24:22
	If you had had in the fourth quarter	24:23
	the inventory accumulation of the third quarter,	24:28
	then there would not have been this decline	24:31
	and moderation in inventory accumulation	24:35
	in the past behind us	24:39
	is not a factor which suggests weakness ahead	24:41
	but rather it is a factor	24:45
	which suggests strength.	24:47
	The most distressing thing from a standpoint	24:51
	of strength and weakness in the period ahead	24:53
	would have been if the fourth quarter figures	24:55
	had shown what happened in 1966	24:58
	in the fourth quarter just before that mini recession,	25:02
	namely a tremendous upswing in inventory accumulation.	25:06
	I believe if my memory is correct to $20 billion.	25:11
	Well, instead of it having gone up	25:16
	and casting a shadow over future progress	25:18
	to a significant degree,	25:22
	not a great degree, inventory accumulation went down,	25:26
	so next time I would like to continue the story	25:29
	of what if any the changed outlook is	25:34
	for interest rates for the quarterly profile	25:37
	of the GNP in the year ahead	25:42
	and for profits and macroeconomics generally.	25:44
-	Thank you, Professor Paul Samuelson.	25:49
	If there's a topic you'd like discussed,	25:51
	drop your suggestions on a postcard	25:53
	to Instructional Dynamics Incorporated,	25:56
	166 East Superior Street, Chicago, 60611.	25:58

Item Info

Title:

Tape 43 - State of the union

Date:

circa 1969

Contributor:

Samuelson, Paul A. (Paul Anthony), 1915-2009

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audiocassettes

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English

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Paul A. Samuelson papers, 1933-2010 and undated

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Paul A. Samuelson papers, 1933-2010

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Economics Cassette Series: Paul Samuelson

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ref2225_zs3
samuelsonpaul
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pstau001043
ark:/87924/r4gt5fx7f
40046ce0-d68d-4b0e-bfad-bff4f8c625ba

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Tape 43 - State of the union

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